# VECM Help Required

#### faizan123

##### New Member
Hi im constructing a vecm regression and need help interpreting the results. it would be much appreciated if you could helps me

I'm testing determinants of inflation, I've constructed unit root test along with co-integration test and am now struggling to understand my vecm results.

my dependent varible in cpi so in my vec model should i only be looking at the 1st error correction model labled d(cpi)on the horizontal axcis and using the coefficients of the varibles under that heading.

also using the standerd 2 lags and I don't understand why the coefficient sign changes for a variable with a lag, for example d(OIL(-1)) 0.0376 which i believe makes economic sense but d(OIL(-2)) = -0.006626 which from what i know goes against economic theory. and this trend happen for most my variables.

Also do these coefficients represent speed of adjustment in order to restore long run equilibrium.

Another question is what do the coefficients under the cointEq1,2,3 represent e.g unem(-1) 3.16834

hear is some of the model

Vector Error Correction Estimates
Date: 01/26/13 Time: 02:12
Standard errors in ( ) & t-statistics in [ ]

Cointegrating Eq: CointEq1 CointEq2 CointEq3

CPI(-1) 1.000000 0.000000 0.000000

INT2(-1) 0.000000 1.000000 0.000000

M2(-1) 0.000000 0.000000 1.000000

OIL(-1) -0.709087 0.012550 -9.81E+10
(0.13954) (0.02878) (1.3E+10)
[-5.08153] [ 0.43599] [-7.60147]

RGDP(-1) -9.08E-12 9.72E-13 -0.410964
(1.0E-12) (2.1E-13) (0.09211)
[-9.11989] [ 4.73313] [-4.46179]

UNEM(-1) 3.168342 -0.348349 3.94E+11
(1.18834) (0.24513) (1.1E+11)
2.66620] [-1.42110] [ 3.58698]

C 11.66774 -12.45975 2.93E+11

Error Correction: D(CPI) D(INT2) D(M2)

CointEq1 -0.016302 -0.021186 -1.67E+09
(0.00716) (0.01332) (5.4E+08)
[-2.27662] [-1.59089] [-3.09419]

CointEq2 0.109832 -0.070831 6.00E+08
(0.02082) (0.03871) (1.6E+09)
[ 5.27618] [-1.82968] [ 0.38287]

CointEq3 1.87E-13 1.18E-13 0.007580
(8.8E-14) (1.6E-13) (0.00663)
[ 2.12164] [ 0.71843] [ 1.14339]

D(CPI(-1)) -0.003501 0.174649 2.28E+10
(0.11985) (0.22289) (9.0E+09)
[-0.02921] [ 0.78357] [ 2.52581]

D(CPI(-2)) -0.392062 0.584066 -1.65E+09
(0.12175) (0.22641) (9.2E+09)
[-3.22027] [ 2.57965] [-0.18012]

D(INT2(-1)) 0.003713 0.157560 -1.21E+10
(0.04913) (0.09137) (3.7E+09)
[ 0.07557] [ 1.72445] [-3.28008]

D(INT2(-2)) -0.019054 -0.373610 -5.89E+09
(0.05211) (0.09690) (3.9E+09)
[-0.36567] [-3.85552] [-1.50139]

D(M2(-1)) 1.52E-12 -2.24E-12 0.216682
(1.2E-12) (2.3E-12) (0.09364)
[ 1.22494] [-0.96690] [ 2.31393]

D(M2(-2)) -5.07E-12 -2.04E-12 0.269365
(1.4E-12) (2.5E-12) (0.10275)
[-3.71738] [-0.80346] [ 2.62153]

D(OIL(-1)) 0.037611 -0.011235 -2.99E+09
(0.01018) (0.01893) (7.7E+08)
[ 3.69586] [-0.59365] [-3.90661]

D(OIL(-2)) -0.006626 -0.054824 1.90E+09
(0.01060) (0.01971) (8.0E+08)
[-0.62535] [-2.78221] [ 2.38376]